German commercial investment market in Q4 2017

05 January 2018

Transaction volume materially exceeds €50bn for the third successive year despite modest decline in transaction activity

  • Transaction volume increases to €57.1bn (+4% compared with 2016)
  • Asian investors become second largest purchaser group
  • Development acquisitions increase to €6bn (11% of overall volume)
  • Further modest yield compression as the supply shortage increases
  • Yields only expected to harden selectively in 2018; capital growth primarily achievable via rental growth
  • Transaction volume expected to exceed €50bn once again in 2018

The transaction volume in the German commercial investment market totalled almost €57.1bn last year, an increase of around 4% compared with 2016. While the first half of the year witnessed the highest level of investment since 2007, the final quarter was more subdued than in the two previous years with a transaction volume of around €16.2bn (-25% compared with Q4 16). “Although we considered €60bn possible at one point, this was not quite achieved. For the third year in succession, however, property changed hands for significantly more than €50bn,” says Matthias Pink, Director and Head of Research Germany for Savills, adding: “In contrast with the transaction volume, we witnessed a decline in the number of transactions, particularly in the second half of the year. This was probably a reflection of the supply shortage, which became even more acute.” The fact that the transaction volume was still so high was primarily attributable to the higher average transaction size. The average volume per transaction stood at approximately €27m, which was 13% higher than in 2016. “Since the number of large transactions was in line with the five-year average, the increase in transaction size is most likely a consequence of the fact that prices have risen across the market,” says Pink.

The number of properties transacted fell from around 2,300 in 2016 to some 2,100 last year, representing a decrease of 8%. Marcus Lemli, CEO Germany and Head of Investment Europe explains: “Many banks, closed-end funds and private-equity funds have disposed of the majority of their holdings in Germany in recent years, predominantly selling these to long-term institutional investors such as insurance companies and special funds. This, combined with the fact that development activity remains subdued, is creating a sustained shortage of product.”

The three most active purchaser groups all comprised investors that typically pursue a buy-to-hold strategy. By far the most active investors were open-ended special funds, which accounted for a quarter of the overall transaction volume. These were followed by asset managers and fund managers in second place, which were responsible for more than 18% of investment. Third place was occupied by property companies and REITs, which accounted for around 11% of the acquisition volume. Together, these three purchaser groups were responsible for more than half of the overall volume.

In keeping with previous years, office property was particularly high on investors’ agendas. The office sector was once again by far the most active, registering total investment of €23.4bn or 41% of the overall commercial transaction volume. Compared with 2016, however, there was a modest decline of 3% in the office investment volume. “The healthy economic climate, combined with high demand from office occupiers, continues to favour investment in office property. At the same time, modern office space is a rare commodity in many cities. Consequently, many investors are assuming that rents will continue to rise over the long term,” says Lemli. The second largest proportion of overall investment activity was attributable to retail property, with investment of approximately €14.1bn, around a quarter of the total transaction volume. Investment in the retail sector showed a modest increase (+2%) compared with 2016. “However, investors in retail property are acting highly selectively and are particularly seeking properties or deals with a strong food anchor,” says Lemli. Investment in logistics and industrial property, on the other hand, showed remarkable growth. Properties changed hands for more than €8.6bn last year (+78% compared with 2016), making this the third largest sector in terms of investment in 2017 with more than 15% of the transaction volume. “Investors’ appetite for logistics property is unlikely to abate this year, with large institutional investors capitalising on the structural growth in this sector,” says Pink.

In retrospect, 2017 was also the year in which Asian investors made their grand entry into the German commercial property market. Overall, these were responsible for more than 9% of the acquisition volume, occupying second place behind American investors (10%). Purchasers from Great Britain came third with more than 5% of investment. In total, foreign investors accounted for 48% of investment volume. Investors from Asia were particularly interested in high-value properties or portfolios. Examples include the purchase of the Logicor portfolio by Chinese sovereign wealth fund CIC, the acquisition of IDI Gazeley by GLP from Singapore and the acquisition of Geneba by Frasers Centrepoint, also based in Singapore.

Despite the large number of high-value logistics portfolios, investment activity in portfolios remained almost constant as a proportion of the overall commercial transaction volume. Investment in real estate portfolios totalled around €18.6bn last year, approximately a third of total investment.

There was significant growth in development acquisitions, which accounted for more than €6bn, or 11% of the overall volume. This compares with 6% and 8% of investment in the two previous years respectively. “Since finding product is becoming increasingly difficult, many investors are opting to make early acquisitions of development projects, particularly since development volume is increasing and, correspondingly, providing more investment opportunities,” says Lemli.
Berlin was by far the most popular investment destination last year. Commercial property in the German capital changed hands for around €7.5bn (+49% compared with 2016). Frankfurt claimed second place, with deals totalling approximately €6.3bn to equal the previous year’s total. The buoyant investment activity in these two cities is also likely to be attributable to high expectations of rental growth. In Frankfurt, investors are expecting rents to rise as a result of Brexit while, in Berlin, the booming start-up and technology sector is one of many reasons for optimism. Munich witnessed the third highest investment activity with a transaction volume of more than €5.1bn. However, this represented a decline of 12% compared with 2016. There were even greater decreases in investment volume in Hamburg (-31% compared with 2016) and Stuttgart (-35% compared with 2016). Properties in Hamburg changed hands for around €3.2bn compared with a total of approximately €1.2bn in Stuttgart. Conversely, two cities in North Rhine-Westphalia, Cologne and Düsseldorf, witnessed increases in investment volume. Deals in Düsseldorf totalled approximately €2.7bn, representing an increase of 7% compared with 2016, while the transaction volume in Cologne increased materially by 24% to €2.1bn.

Prime yields on office properties hardened only in Berlin in the fourth quarter, falling by a further 10 basis points to 3%, with yields in the other top seven cities remaining stable. At the end of the year, the prime office yield across the top seven cities averaged 3.3%. This reflects yield compression of 38 basis points during 2017. Prime yields on high-street properties in 1a locations also ended the year at an average of 3.3% across the top seven cities. The lowest yields were found in Frankfurt and Munich (both 2.9%). The prime yield across the top seven cities hardened by an average of 20 basis points last year. “The fact that yields on offices hardened more than those on high-street properties is likely a reflection of the significant upheaval in the retail sector and the associated risks,” assesses Pink.

Yields are only expected to harden selectively during the current year. “We are currently at a stage of the cycle where capital growth is most likely to still be achievable via rental growth. In order to identify this rental growth potential, investors must observe the markets and properties intensively,” says Lemli.

“However, while capital growth is becoming more difficult to achieve, investors in the German property market are, for the most part, seeking stable income. In view of the favourable economic projections, this will remain a strong argument for the German real estate market. Consequently, we expect the transaction volume to exceed €50bn once again this year,” predicts Lemli.


General Enquiries

Savills Berlin


Key Contacts

Marcus Lemli

Marcus Lemli

CEO Germany / Head of Investment Europe
European Investment

Savills Frankfurt

+49 69 273 000 11


Matthias Pink

Matthias Pink

Director / Head of Research Germany

Savills Berlin

+49 30 726 165 134